By Kymberly Martin
NZD
The NZD/USD was amongst the strongest performers over the past 24-hours, sitting at 0.7800 this morning.
Friday’s upward momentum in the USD ran out of steam at the start of the week. Consequently the NZD strengthened against a broadly weaker USD.
The NZD/USD was on a steady uptrend overnight to sit around 0.7800 currently. Despite a fair amount of volatility, the NZD/USD has essentially been consolidating in a 0.7700-0.7850 range for most of the past month.
The NZD was also stronger on the crosses, most notably relative to the JPY. The NZD/JPY moved up to trade at 78.90 this morning. The uptrend should continue over the medium-term taking this cross back toward previous highs by year-end.
The NZD also continued to strengthen relative to its key European peers overnight, taking the NZD/GBP and NZD/EUR to 0.5220 and 0.6070 respectively.
In the absence of a resurgence in risk aversion, we expect NZ’s superior fundamentals and the RBNZ’s more hawkish policy stance to continue to exert mild upward pressure on these currencies.
The NZD/AUD has moved higher over the past 24-hours but failed to push on above 0.8560.
We expect further appreciation over the medium-term as relative growth, commodity prices and interest rate differentials move in favour of the NZD. Our end-year target remains at 0.8900.
The domestic highlight today will be the Quarterly Survey of Business Opinion. This will likely tell a now familiar story of broad-based strength. June’s electronic card transactions will also be delivered today along with QV house prices.
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Majors
The USD failed to maintain Friday’s upward momentum, drifting lower from the start of the week. The AUD and NZD were key outperformers along with the NOK.
Overnight, in light dataflow, US bond yields drifted lower as did the USD index. Our risk appetite index (scale 0-100%) remained fairly stable at 66% as European equities put in a solid 2.1% performance.
The USD index failed to break above the 84.60 level that had marked its highs in late May, slipping to trade around 84.20 this morning.
Meanwhile, all its peers moved higher over the past 24-hours, led by a 1.80% rise in the NOK. Not far behind was a steady 1.40% rise in the NZD.
The AUD/USD that opened the week around the 0.9040 level, carefully climbed its way to sit around 0.9140 currently.
Today, in AU, the June NAB monthly business survey will be released. The market will be looking for any signs of improvement from the previous readings that remained firmly in negative territory.
The EUR/USD stabilised at the start of the week, moving higher overnight. German industrial production (May) came in below expectation (-1% vs. -0.5% expected). However, sentiment in the region was supported by Portugal forming a ruling coalition and the fact that Greece had made progress in securing its latest bailout from the ‘Troika’.
The EUR/USD moved up from 1.2810 to sit just below 1.2880 at present. Tonight, the EU Finance Ministers continue their meeting in Brussels.
The GBP/USD also managed a bounce after last week’s sharp plunged. Finding support at 1.4860 the GBP/USD has clawed its way to trade around 1.4960 this morning.
Tonight the UK releases industrial production and trade balance data. The release of May industrial production data will be important in helping shape Q2 GDP expectations.
Our NAB colleagues expect an above consensus 0.5% rise in manufacturing production, in line with stronger survey data.
The JPY also rode along on the tide of a weaker USD. The USD/JPY slipped from above 101.50 to sit around 100.90.
Over the medium-term however, as the Bank of Japan extends monetary accommodation while the US Fed moves gradually towards tighter policy, we see the USD/JPY sustaining a strengthening trend.
Event Calendar:
9 July: NZ QSBO; NZ ECT data; NZ house prices; AU NAB business confidence; CH CPI; UK manufacturing production;
10 July: AU consumer confidence; CH trade balance; AU RBA Assistant Governor Debelle speaks; US FOMC minutes; US Fed’s Bernanke speaks;
11 July: NZ PMI; NZ food prices; AU employment; JN BoJ; US jobless claims;
12 July: US Michigan consumer confidence; Fed’s Plosser & Bullard speak
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